Online Banking - Ireland - May 2004

Contents

Introduction and Abbreviations

• Definitions
• Geographical, national and regional definitions
• Population Figures
• Conversion factors
• BMRB Target Group Index (TGI) sample sizes
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• Abbreviations

Executive Summary

Market dynamics suggest a positive future for online banking

Target market for online banking shows signs of growth

Phenomenal growth in number of online banking users masks a more limited reality

Local banks dominate the online banking market but competition is emerging

Advertising and promotion will be crucial to growth of online banking

Online banking most popular among affluent and 25-49-year-old consumers

Online banking users make frequent use of service - a trend more evident in RoI

Consumer attitudes towards online banking differ in RoI and NI

Attachment to traditional banking and negative perceptions proving to be a barrier to

online banking

Market Drivers

Demographics

• Figure 1: Population trends, by age group, in thousands, RoI, 1998, 2003 and 2008
• Figure 2: Population trends, by age group, in thousands, NI, 1998, 2003 and 2008

Consumer confidence

• Figure 3: Index of consumer expectation in RoI, 1996-2003

Disposable income

• Figure 4: Personal disposable income per capita at current prices and year-on-year (YoY) % growth, RoI, NI and UK, 1995-2002
• Figure 5: Personal disposable income per capita at constant (1995) prices, RoI, NI and UK,
• 1995-2002

Unemployment

• Figure 6: Employment and unemployment trends, by gender, RoI, 1999-2004
• Figure 7: Employment and unemployment trends, by gender, NI, 1999-2004

Technology

Growing acceptance of the Internet among Irish consumers

• Figure 8: Internet penetration (any access - home and elsewhere), GB, RoI and NI, 2000 and 2003

Online business banking leading the way

Banks are facilitating the uptake of online banking

• Figure 9: Number of ATMs provided by the five main clearing bank groups in RoI, 1998-2003
• Figure 10: Number of ATMs provided by the four main home-based banks in NI, 1997-2001

New entrants

Wide ownership of basic financial products provides opportunity for online banking

• Figure 11: Most competitive credit card providers by lowest standard rate, UK, February 2004

Legislation

Benefits of online banking

Barriers to online banking

Market Size and Segmentation

Market size

• Figure 12: Market size (by number of online banking users), all-Ireland, 2001-03
• Figure 13: Market size (by number of online banking users), RoI and NI, 2001-03

Market segmentation

• Figure 14: Breakdown of online banking usage, RoI, February 2004
• Figure 15: Breakdown of online banking usage, NI, February 2004

The Supply Structure and Profiles

Pure-play banks

• Cahoot
• Egg
• First Direct
• IF - Intelligent Finance
• One Direct
• Smile

Clicks and mortar

• Abbey National
• Alliance & Leicester
• Allied Irish Bank/First Trust Bank
• Bank of Ireland
• HBOS
• HSBC
• Northern Bank/National Irish Bank
• Permanent TSB
• Ulster Bank Group

Competition emerging from new quarters

• Supermarkets and retailers moving into personal finance market
• Figure 16: Supermarkets and retailers should not get involved in personal finance, RoI and NI,
• 2003

Advertising and Promotion

Advertising expenditure

• Figure 17: Total advertising expenditure on telephone/online banking by bank/brand, RoI, 2001 and 2003
• Figure 18: Advertising expenditure on online banking, broken down by brand, NI, 1999-2003

Mass market or bust for some banks

Online advertising expected to grow in importance

• Figure 19: Overall advertising expenditure by all companies, RoI, 1998-2003
• Figure 20: Overall advertising expenditure by all companies, NI, 1998-2002

New technology offers potential

• Figure 21: Mobile phone penetration in RoI and NI, 1998 and 2003
• Figure 22: Penetration of digital, satellite and cable television in RoI, 2001 and 2003
• Figure 23: Penetration of digital, satellite and cable television in NI, 2001 and 2003

Branding

Advertising intensity driven by a range of factors

• Figure 24: Promotional intensity matrix, for specific financial products

The Consumer

Consumers' familiarity with Internet will dictate their use of online banking

• Figure 25: The evolution of an e-consumer

Consumer research into online banking

• Figure 26: RoI and NI sample sizes, 2004

Overall penetration of online banking

• Figure 27: Penetration of online banking, RoI and NI, February 2004

RoI consumers

• Online banking consumer profile
• Figure 28: Composition of online banking customer base (%), RoI, February 2004
• Frequency of use of the total population
• Figure 29: Frequency of online banking usage, by %, RoI, February 2004
• 25-49-year-olds and the affluent most frequent users of online banking
• Figure 30: Frequency of online banking usage, by age and socio-economic group, RoI, February 2004
• Full-time workers are heavy users
• Figure 31: Frequency of online banking usage, by employment status and region, RoI, February 2004
• Attitudes towards online banking
• Many RoI consumers remain sceptical about online banking
• Figure 32: Agreement with statements relating to online banking, RoI, February 2004
• Users in RoI are positive about online banking but are reluctant to do away with branch banking altogether
• Figure 33: Agreement with statements relating to online banking, by user group, RoI, February 2004
• Non-users in RoI lack knowledge of online banking and still prefer to visit their bank branch
• Younger and more affluent consumers are the most receptive to online banking
• Figure 34: Agreement with statements relating to doubts about online banking, by age and socio-economic group, RoI, February 2004
• Consumers in full-time employment still to be sold on the benefits of online banking - in contrast with full-time students
• Figure 35: Agreement with statements relating to doubts about online banking, by employment status and region, RoI, February 2004
• Significant barriers to uptake exist among consumers in Connacht/Ulster, which banks will have to address
• Correlation between age and attitudes towards online banking
• Figure 36: Agreement with statements relating to benefits of online banking, by age and socio-economic group, RoI, February 2004
• Appreciation of online banking benefits increases with affluence although consumers remain loyal to well-known banks
• Students' attitudes towards online banking bode well for the future
• Figure 37: Agreement with statements relating to benefits of online banking, by employment status
• and region, February 2004
• Dubliners indifferent to advantages of online banking
• Online banking activity
• Figure 38: Breakdown of online banking usage by type of transaction, RoI, February 2004
• 25-49-year-olds and ABC1 consumers are the most confident users of online banking in RoI...
• ...while Dubliners and those in the rest of Leinster also show signs of confidence when using online banking

NI consumers

• Online banking consumer profile
• Figure 39: Composition of online banking customer base (%), NI, February 2004
• Frequency of use of the total population
• Figure 40: Frequency of online banking usage by %, NI, February 2004
• Ownership of multiple financial products can determine frequency of online banking usage
• Figure 41: Frequency of online banking usage, by age and socio-economic group, NI, February 2004
• Heaviest users are consumers in full-time employment residing in Belfast City
• Figure 42: Frequency of online banking usage, by employment status and region, NI, February 2004
• Attitudes towards online banking
• Figure 43: Agreement with statements relating to online banking, NI, February 2004
• NI users still prefer to use well-known banks but are prepared to use other online banks in addition to their existing bank
• Figure 44: Agreement with statements relating to online banking, by user group, NI, February 2004
• High preference for branch banking among non-users is main barrier to online banking
• Younger NI consumers most positive towards online banking while older consumers still prefer branch banking
• Figure 45: Agreement with statements relating to doubts about online banking, by age and socio-economic group, NI, February 2004
• As in RoI, affluent consumers show least loyalty to branch banking
• Loyalty to branch banking is lowest among NI consumers in full-time education, suggesting they will be most receptive to online banking
• Figure 46: Agreement with statements relating to doubts about online banking, by employment status and region, NI, February 2004
• Benefits of online banking rated most highly by 16-49-year-olds
• Figure 47: Agreement with statements relating to benefits of online banking, by age and socio-economic group, NI, February 2004
• Full-time employed most likely to shop around for financial products, which presents opportunity for pure-plays and smaller players
• Figure 48: Agreement with statements relating to benefits of online banking, by employment status and region, NI, February 2004
• Online banking activity
• Figure 49: Breakdown of online banking usage, by type of transaction, NI, February 2004

RoI and NI consumer comparisons and conclusions

• The online banking consumer profile differs in RoI and NI
• ABC1 consumers aged between 25-49 are most frequent users of online banking in both RoI and NI
• Majority of online banking users will use it at least once a week
• Figure 50: Frequency of online banking usage, (%), RoI and NI, February 2004
• RoI online banking users display most positive sentiment for online banking
• Non-users in NI still show high attachment to traditional branch banking
• Security concerns more prevalent among NI consumers
• Loyalty to well-known banks is higher in NI
• Attitudes reveal that educating the consumer about online banking is a priority
• RoI consumers less likely to shop around but more aware of the convenience and accessibility of online banking
• Attitudes towards online banking based on perception rather than experience
• Potential exists in RoI for pure-play banks
• NI consumers still to realise potential of online banking
• Online banking does not play a major role in the choice of financial provider

The Future

Online banking yet to blossom

Role of ATMs provides indication of future impact of online banking

Changes in the competitive structure to have major bearing on market

Promotion of online banking crucial, with growing potential for new communication channels and a possible role for the more personal touch

Customised online banking products vs the 'one size fits all' approach

Forecas

• Figure 51: Penetration of online banking, by age, RoI and NI, February 2004
• Figure 52: Forecast of the number of online banking users, Scenario 1, RoI and NI, 2003-08
• Figure 53: Forecast of the number of online banking users, Scenario2, RoI and NI, 2003-08

Appendix: Research Methodology